This article was last updated on November 18 2022
The UK's "Register of Overseas Entities", created pursuant to the Economic Crime (Transparency and Enforcement) Act 2022, launched on 1 August 2022. In the Government's words, the rationale for the new register is to require "anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies, setting a global standard for transparency."
The Act's 6-month transition period comes to an end on 31 January 2023 and marks the deadline for overseas entities that are required to register to do so, or face both restrictions on dealing with property they hold and criminal offences.
Restrictions on dealing with UK land
An overseas entity that owns UK property (freehold or a leasehold interest of more than seven years) must, if it has not already done so, make an application to register itself and its registrable beneficial owners at Companies House before 31 January 2023. This marks the end of a 6-month transition period which started when the register was launched on 1 August 2022. As of 5 September 2022, an overseas entity has been prohibited from buying UK land unless it has been registered at Companies House.
The Act also provides that a restriction will be placed on every title owned by any overseas entity, preventing that entity from selling, leasing or mortgaging the land unless the beneficial owner or controller of the entity has registered their identity at Companies House. For properties in England and Wales that were acquired between 1 January 1999 (different requirements apply for Scotland and Northern Ireland) and 1 August 2022, these restrictions on title will take effect from 1 February 2023. If the acquisition of the property made after 1 August 2022, the restrictions on title will already have taken effect.
When an overseas entity registers at Companies House, it must confirm that it has not disposed of any property since 28 February 2022. If in fact it has disposed of any property since that date, it must also give details of that disposal as well as details of its beneficial ownership as at the time of the disposal. Additionally, if an overseas entity disposes of UK land between 28 February 2022 and the end of the six-month transition period, it must, before the end of the transition period, register details of that disposal along with details of its beneficial ownership as at the time of the disposal.
Mechanics of the register
Each entity that completes the necessary registration is allocated an "overseas entity ID" number. The entity will then need to update its beneficial owner details at Companies House at least once every 12 months. If it does not, it will be banned from buying, selling, mortgaging or leasing UK land until this is remedied. A purchaser buying from an entity with a valid ID will therefore check when the 12 month renewal falls and will stipulate that the entity's details must be duly updated in time for the completion date.
Who needs to appear on the register?
The register of overseas entities owning UK land is closely modelled on the UK's "People with Significant Control" (PSC) regime applicable to UK corporate entities. Very broadly, overseas entities owning UK land are required to register details of those who hold, directly or indirectly, more than 25% of the shares or voting rights, those who can appoint or remove a majority of the board or those who have the ability to exercise significant influence or control over the entity.
The register focuses on "legal entities" with legal personality under local law and does not therefore require the registration of trusts. Trustees of a trust with the requisite control over an overseas legal entity do, however, need to be registered, along with anyone else who has the right to exercise, or actually exercises, significant influence or control over the trust. The Act also requires those trustees with the requisite level of control to provide certain information about the trust when applying for registration on the register. Alongside these requirements, the separate mechanism of the Trust Registration Service (TRS) requires beneficiaries and controllers of UK express trusts and other trusts acquiring UK land to be identified and registered with HMRC. The TRS is not a publicly available register, although law enforcement agencies and individuals who have a "legitimate interest" in a specified trust can apply for the relevant information.
Verification of information
Beneficial owner information must be verified before an overseas entity applies for registration (or updates information on the register). The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 set out who can verify the information (certain types of "relevant person" under the UK's Money Laundering Regulations) and the standard of verification required (on the basis of documents or information obtained "from a reliable source which is independent of the person whose identity is being verified"). Verifying information that results in false or misleading information being submitted to Companies House could result in criminal liability for the verifier of that information. On 9 November 2022, Companies House published a non-exhaustive list of UK-regulated agents who can undertake verification of the information regarding beneficial owners.
Non-compliance
As well as the restrictions on buying and selling properties outlined above, the Act also provides for various criminal offences for non-compliance, which includes fines of up to £2,500 per day or up to 5 years in prison.
Next steps and ongoing corporate transparency and register reform
To the extent not already in hand, review of existing overseas entity property structures should be prioritised. Any property sales since 28 February 2022 and all current property sales by overseas entities should be carefully considered to ensure that the reporting obligations of the entity are met.
The Register of Overseas Entities was created under the Economic Crime (Transparency and Enforcement) Act 2022. A second Economic Crime Bill, the Economic Crime and Corporate Transparency Bill, is now making its way through Parliament and sets out wider-ranging reforms to tackle economic crime and improve corporate transparency, including reforms to Companies House, and the prevention of the abuse of limited partnerships.